Bakersfield College

ACG 2021

1)Jung Inc. owns a patent for which it paid $66 million. At the end of 2016, it had accumulated amortization on the patent of $16 million. Due to adverse economic conditions, Jung's management determined that it should assess whether an impairment loss should be recognized for the patent. The estimated undiscounted future cash flows to be provided by the patent total

$43 million, and the patent’s fair value at that point is $35 million. Under these circumstances, Lester:

1. 1. Would record no impairment loss on the patent.
   2. Would record a $7 million impairment loss on the patent.
   3. Would record a $15 million impairment loss on the patent.
   4. Would record a $31 million impairment loss on the patent.

2. In 2015, Antle Inc. had acquired Demski Co. and recorded goodwill of $245 million as a result. The net assets (including goodwill) from Antle's acquisition of Demski Co. had a 2016 year-end book value of $580 million. Antle assessed the fair value of Demski at this date to be $700 million, while the fair value of all of Demski’s identifiable tangible and intangible assets (excluding goodwill) was $550 million. The amount of the impairment loss that Antle would record for goodwill at the end of 2016 is:
   1. $150 million.
   2. $ 95 million.

c.     $0.

d.     None of these answer choices are correct.

3. Which of the following types of subsequent expenditures normally is capitalized?
   1. Additions.
   2. Improvements.
   3. Rearrangements.

b. All of these answer choices are normally capitalized.

4. A major expenditure increased a truck's life beyond the original estimate of life. GAAP permits the expenditure to be debited to:
   1. Repairs.
   2. Accumulated depreciation.
   3. Major repairs.
   4. None of these answer choices are correct.

5. The replacement of a major component increased the productive capacity of production equipment from 10 units per hour to 18 units per hour. The expenditure should be debited to:
   1. Repairs.
   2. Equipment.
   3. Maintenance.
   4. Gain from repairs.

6. Calloway Shoes purchased a delivery truck on September 30, 2016, for $32,000. The estimated useful life of the truck is 10 years with no residual value. After five years, the refrigeration unit will need to be replaced. The $8,000 cost of the unit is included in the cost of the truck. Calloway uses the straight-line depreciation method. Depreciation for 2016 under U.S. GAAP and International Financial Reporting Standards (IFRS), respectively, is:

a.           $3,200.                      $3,200.

7. Robertson Inc. prepares its financial statements according to International Financial Reporting Standards (IFRS). At the end of its 2016 fiscal year, the company chooses to revalue its equipment. The equipment cost $540,000, had accumulated depreciation of $240,000 at the end of the year after recording annual depreciation, and had a fair value of $330,000. After the revaluation, the accumulated depreciation account will have a balance of:

a.     $240,000.

b.     $264,000.

c.     $270,000.

d.     None of these answer choices are correct.

8. Rice Industries owns a manufacturing plant in a foreign country. Political unrest in the country indicates that Rice should investigate for possible impairment. Below is information related to the plant’s assets ($ in millions):

Book value                                                                                                    $190

Undiscounted sum of future estimated cash flows                        210

Present value of future cash flows                                                        175

Fair value less cost to sell (determined by appraisal)                     180

The amount of impairment loss that Rice should recognize according to U.S. GAAP and IFRS, respectively, is:

1. 1. $10 million.    $10 million.
   2. $15 million.    $15 million.
   3. $0.                     $10 million.
   4. There is no impairment under both U.S. GAAP and IFRS.

9. Kingston Corporation has $95 million of goodwill on its books from the 2014 acquisition of Reliant Motors. At the end of its 2016 fiscal year, management has provided the following information for its required goodwill impairment test ($ in millions):

Assuming that Reliant is considered a reporting unit for U.S. GAAP and a cash-generating unit for IFRS, the amount of goodwill impairment loss that Kingston should recognize according to

U.S. GAAP and IFRS, respectively, is:

1. $45 million.             $45 million.
2. $55 million.             $45 million.
3. $0.                              $30 million.
4. $40 million.             $30 million.

10. According to International Financial Reporting Standards (IFRS), the revaluation of equipment when fair value exceeds book value, results in:
    1. An increase in net income.
    2. A decrease in net income.
    3. An increase in other comprehensive income.
    4. A decrease in other comprehensive income.

11. According to International Financial Reporting Standards (IFRS), biological assets are valued at:
    1. Cost less accumulated depreciation.
    2. Fair value less estimated costs to sell.
    3. Cost less accumulated depletion.
    4. None of these answer choices are correct.

12. According to International Financial Reporting Standards (IFRS), the impairment loss for property, plant, and equipment is the difference between book value and:
    1. The undiscounted sum of estimated future cash flows.
    2. The present value of future cash flows.
    3. Fair value less costs to sell.
    4. The higher of the present value of estimated future cash flows and the fair value less costs to sell.

13. According to International Financial Reporting Standards (IFRS), the level of testing for goodwill impairment is the:
    1. Reporting unit.
    2. Subsidiary companies.
    3. Cash-generating unit.
    4. None of these answer choices are correct.

14. The normal treatment of litigation costs to successfully defend an intangible right under U.S. GAAP and International Financial Reporting Standards (IFRS), respectively, is:
    1. Capitalize; expense.

1. U.S. GAAP                  IFRS

Capitalize             Expense

2. Capitalize                Capitalize
3. Expense                   Capitalize
4. Expense                   Expense

15. Canliss Mining uses the retirement method to determine depreciation on its office equipment. During 2014, its first year of operations, office equipment was purchased at a cost of $14,000. Useful life of the equipment averages four years and no salvage value is anticipated. In 2016, equipment costing $5,000 was sold for $600 and replaced with new equipment costing $6,000. Canliss would record 2016 depreciation of:

a.    $3,500.

b.   $4,400.

c.     $5,400.

d. None of these answer choices are correct.

16. Canliss Mining uses the replacement method to determine depreciation on its office equipment. During 2014, its first year of operations, office equipment was purchased at a cost of $14,000. Useful life of the equipment averages four years and no salvage value is anticipated. In 2016, equipment costing $5,000 was sold for $600 and replaced with new equipment costing $6,000. Canliss would record 2016 depreciation of:

a.    $3,500.

b.   $4,400.

c.     $5,400.

d. None of these answer choices are correct.

Matching Pair Questions

17. Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term.

18.          Listed below are five terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the number for the correct term.

19.          Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term.

TERM                                                                   PHRASE                                              NUMBER

1. Depletion                                      Cost allocation for a natural resource.                                         

2. Change in depreciation method

Amount of use expected from plant and equipment           

asset.

3. Service life                                    Cost less residual value.                                                                     
4. Allocation base                           Treated prospectively like a change in estimate                      
5. Amortization                                Cost allocation for an intangible asset.                                        

20.          Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term.

21.          Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term.

TERM                                                                   PHRASE                                          NUMBER

1. Indefinite life                                    The reason for not amortizing goodwill.                               
2. Group method                                 Cost allocation for plant and equipment.                             
3. Depreciation                                      Aggregates assets that are similar.                                          
4. Time-based method                      Estimates service life in years.                                                  

5. Sum-of-the-years'-digits method

Results in depreciation declining by the same                   

amount in subsequent years.